The Australian work-related expenses gap leaves the corporate tax gap in its wake, and agent-prepared returns bear the brunt of the blame.
While Australia’s $2.5 billion corporate tax gap receives intense scrutiny, the tax gap from incorrectly claimed work-related expenses is estimated to be larger, the Australian Taxation Office (ATO) said on Thursday.
Expressing disappointment, ATO commissioner Chris Jordan added that it’s the tax returns prepared by agents that are more likely to be incorrect.
“While the amount of each adjustment may be small, the overall impact when extrapolated to the whole population is significant. As I have mentioned previously, the work-related expenses gap is estimated to be greater than the large corporate tax gap of $2.5 billion,” he told the Tax Institute’s 33rd National Convention in Cairns.
“Though this is not new news, what is concerning is the different results for self-preparers and those who use an agent.”
Mr Jordan said it appears complacency has replaced the “golden rules of deductions”. That is, money must have been spent, and not imbursed, in relation to work and the claimant must be able to prove their expenditure.
“These results are really disappointing. For years I’ve heard how tax agents were guardians of the system – these random inquiry results tell me this is not the case for some agents. They are not fulfilling their duty as a registered tax practitioner in line with the Tax Practitioners Code of Conduct.
“In reality, they are selling their clients short – they are not bringing their expertise, nor taking care beyond reliance or blind acceptance of information given by clients, or even, leading clients to deductions that are not allowable.”
He said tax agents may consider easy, but incorrect, deductions may be a “sugar hit” for customers but warned that it’s a net negative for customers in the long term.
Mr Jordan’s comments align with previous warnings that the ATO will be scrutinising undeclared income, unexplained wealth as well as incorrectly claimed work-related expenses.
Speaking in November, he said, “From the random audits and other compliance activities conducted for the individual market, we are concerned by the level of non-compliance we are seeing – particularly in relation to overclaiming of work-related expenses.
“We also see some agents neglecting to check that their client has actually spent the money on the required item and that it was directly related to earning their income; and some claiming for personal (not work-related) expenses through carelessness, miscalculations and mistakes.”
With this in mind, Mr Jordan emphasised in his Thursday keynote address that when his tenure expires in 2024, he wants to be able to say: “People know and feel that complying with their obligations is not so hard, but more importantly, worth it, for peace of mind and for the satisfaction of doing the right thing. And there are consequences for those who do the wrong thing – they get caught, and are held to account.”
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